Big Mac Index

It is based on the theory of purchasing-power parity (PPP), the notion that in the long run exchange rates should move towards the rate that would equalise the prices of a basket of goods and services around the world. At market exchange rates, a burger is 44% cheaper in China than in America. In other words, the raw Big Mac index suggests that the yuan is 44% undervalued against the dollar. But we have long warned that cheap burgers in China do not prove that the yuan is massively undervalued. Average prices should be lower in poor countries than in rich ones because labour costs are lower. The chart above shows a strong positive relationship between the dollar price of a Big Mac and GDP per person.

When adjusted for GDP, we can see where Big Macs are actually expensive: Brazil, Argentina, and Sweden. I guess there’s a premium on special sauce over there.

8 Comments

China / developing countries: It would be interesting to compare to the GDP of urban areas, or 3rd tier city+ urban areas. I think about 70,000 Yuan per year, not huge, but some difference. Also, in China its common to see BigMacs sold at 12 Yuan (discounted), is the same true in other countries?

Actually, Argentina burguer’s are more expensive than what you see here. Big Mac meal costs 4.84 but it’s not offered on the stores, it’s not on the menu. All other meals and the big mac’s replacement (triple mac) are about 50% more expensive than the big mac meal.
The government forced mcdonalds (secretly) to remove big mac from their offer to “cook” the big mac index and the inflation problem we are into.